FORECAST: DROUGHT WILL PUSH UP NEXT YEAR’S FOOD PRICES

U.S. consumers may pay 3 percent to 4 percent more for food next year, as the effects of the country’s worst drought since the 1950s work their way onto supermarket shelves, the U.S. Department of Agriculture said in its first forecast for 2013.

Milk, eggs, beef, poultry and pork prices will all be affected in response to tight supplies of corn, which is used to feed cattle, the USDA said Wednesday. The price of the grain, the country’s biggest crop, has surged more than 50 percent since June 15.

Exactly how much more people might pay for a pound of hamburger, for example, isn’t known because those prices are affected by lots of factors, including how much of the increase a given supermarket might pass along to the consumer. But beef prices as a whole are expected to see the biggest jump at 4 percent to 5 percent, according to the USDA.

Corn and soybean futures both reached record highs this week on the Chicago Board of Trade, and wheat touched its highest since 2008 as the dry conditions worsened in the Midwest and Great Plains.

“The transmission of commodity price changes into retail prices typically takes several months to occur, and most of the impact of the drought is expected to be realized in 2013,” Richard Volpe, the USDA’s food economist, wrote in a note accompanying the forecast.

Normal grocery price inflation is about 2.8 percent, Volpe said, so even a 3 percent increase is slightly higher than usual. The USDA kept its projected food price increase for 2012 steady at 2.5 percent to 3.5 percent, saying average retail food prices were flat for the first half of 2012 thanks to unusually low fruit and vegetable prices as well as lower prices for milk and pork.

The new forecasts are the agency’s first food price projections to factor in the drought, though experts have been warning for a few weeks that prices will rise. As fields dry out and crops wither across much of the country’s midsection, prices for corn, soybeans and other commodities have soared in anticipation of tight supplies. That means farmers and ranchers will have to pay more to feed their livestock, and those costs eventually get passed on to consumers.

Processed foods aren’t affected as much because feed costs don’t account for as much of their price tag. And fruits and vegetables aren’t expected to be any more costly because they are irrigated even in normal weather. The USDA is projecting an overall 2 percent to 3 percent increase for all fruits and vegetables next year, the same as it expects this year.

The drought now covers around 60 percent of the continental United States, the largest area since the epic droughts of the 1930s and 1950s.

“It’s a disaster,” said Rick Tolman, CEO of the National Corn Growers Association, who noted farmers started out the season anticipating a record 14 billion bushel corn crop. The drought is expected to cut production by roughly 3 billion bushels.

Meat and poultry prices will be more affected than processed food prices because feed prices represent the biggest part of their cost of production.

Food companies are already reacting, even turning abroad in some cases to blunt the impact of higher corn prices and tight supplies. Smithfield Foods, the world’s largest pork producer, has bought corn from Brazil, spokeswoman Keira Lombardo confirmed.